Agency Probes Possible Enron Commodity Fraud

The government is investigating whether Enron Corp. committed fraud or manipulated markets through improper trading, the chairman of the Commodity Futures Trading Commission said Monday.

CFTC Chairman James Newsome said the agency was using its anti-fraud and anti-manipulation authority to investigate Enron’s trading on commodity exchanges, notably the New York Mercantile Exchange, as well as its own big online trading system.

The system, called EnronOnline, was the world’s first commodity-trading platform based on the Web.

Enron was the world’s largest buyer and seller of natural gas and the country’s leading electricity trader. The Houston-based company also started new trading markets in telecommunications bandwidth, pulp, paper, plastics and the influence of the weather.

Enron spiraled downward into the biggest corporate bankruptcy in U.S. history on Dec. 2.

Newsome said the CFTC last fall began an inquiry into Enron’s trading that later became a formal investigation. Enron spokesmen had no immediate comment on the CFTC investigation.

Enron became one of the largest traders of energy derivatives--financial contracts used to hedge or speculate on a commodity. Businesses buy them to guard against losses from unexpected market movements while speculators buy them as high-risk bets, hoping for huge returns.

Government officials, including Federal Reserve Chairman Alan Greenspan, have maintained that the multi-trillion-dollar global market in over-the-counter derivatives--which are traded outside commodity exchanges--should continue to be exempt from regulation.

Enron, which was among Bush’s biggest campaign contributors, lobbied throughout the government and Congress against regulation of electricity markets and the trading of derivatives tied to energy commodities.

Wendy Lee Gramm, an Enron director and member of the board’s audit committee, was chairwoman of the CFTC before she joined the Enron board in 1993. As head of the agency, she shepherded an exemption from government oversight for the trading of energy products, which benefited Enron and other energy-traders. Gramm is married to Sen. Phil Gramm (R-Texas), former chairman of the Senate Banking Committee.

Under current law, the CFTC doesn’t have the authority to regulate over-the-counter or electronic derivatives trading but is empowered to investigate if it suspects fraud or market manipulation.

Sen. Dianne Feinstein (D-Calif.) recently proposed legislation that would restore full oversight authority to the CFTC.